The latest reporting obligations published by the Internal Revenue Service (IRS) require the general public in the USA to provide details of their crypto activities, whether they are a part of the crypto world or not. As of 2021, the IRS does not use the term “virtual money”. It has been replaced by “digital assets”. Every US citizen is required by law to answer all the questions related to their crypto activities.
Answering the Questions
Individuals have to answer questions about their crypto activities in three different tax forms. These are:
- 1040 Individual Income Tax Return
- 1040-SR U.S. Tax Return for Seniors
- 1040-NR U.S. Non-resident Alien Income Tax Return
All these 3 forms have questions about digital assets and income from them. IRS requires all individuals to answer their questions with a “yes” or a “no”. All U.S. citizens are now required to answer questions about cryptocurrencies irrespective of whether they participated in any digital asset transactions or not.
The IRS also wants to know if an individual has acquired, transferred, or sold digital assets in the financial year. Individuals should also report any financial gains from their crypto activities, including mining or staking cryptocurrencies.
IRS Tracks Popular Cryptos
Privacy is vital to the crypto space. After all, it is one of the tenets of the crypto-verse. But, in the U.S., IRS has many ways to reach crypto users and make them pay their taxes.
IRS has gotten better at tracking Bitcoin for multiple criminal investigations. They can also easily freeze assets in such cases. So, those who transact in famous cryptocurrencies like Bitcoin and Ethereum should keep tabs on legal changes and calculate their tax liabilities accordingly.
It is common for the IRS to gain information about the crypto trading of U.S. citizens by filing subpoenas against companies that run those cryptocurrencies. If you fail to report a loss, gain, or any activity in the crypto market, the IRS will charge you a fine in addition to the tax levied on your income. That can get quite costly.
Snowfall Protocol (SNW) Users & IRS Reporting
Snowfall Protocol (SNW) is yet to be launched in February. However, since its presale in the latter part of 2022, it has created impressive gains for its users. This includes the continuous appreciation in the price, and passive income from staking activities. Moreover, Snowfall Protocol (SNW) is predicted to grow from 1000% to 5000%.
However, when it comes to the new IRS ruling, Snowfall Protocol (SNW) users do not have to declare any gains from selling the tokens or staking the coin. The reason is simple. Snowfall Protocol (SNW) is based out of Europe. So, it does not come under the purview of U.S. laws. All users who buy Snowfall Protocol (SNW) outside the U.S. do not have to worry about paying taxes per the new US IRS laws.
The Snowfall Protocol (SNW) users do not have to go through the tedious process of filling out three forms declaring their “digital assets”.
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Recently, the Internal Revenue Service (IRS) released a notice stating the agency wants all taxpayers to properly report any crypto activity conducted in the year 2020. This news brings about a heightened sense of importance for those who utilize Bitcoin, Ethereum, and Snowfall Protocol in their daily lives.
The term ‘crypto activity’ itself is rather broad and encompasses all forms of trading, exchanging, and investing of cryptocurrencies in one form or another. This includes even the most basic transactions, such as buying goods with cryptocurrency, earning a salary paid in crypto, and more. The IRS will be using data gathered from various sources in order to identify any crypto users that have not declared their income appropriately.
More specifically, the IRS is requiring that all taxpayers report any gains or losses incurred from their crypto activity as either short-term or long-term capital gains. The distinction between these two types of gains is that short-term gains are taxed as ordinary income, whereas long-term gains are taxed at a lower rate. The notice also emphasises that taxpayers must accurately track the cost basis of any digital currency holdings in order to accurately determine the tax amount.
In response to this news, various crypto-native firms have started taking steps to help their users better understand the importance of reporting their crypto activities. For instance, Coinbase has added a new feature that allows users to easily track their crypto gains and losses in real time. Similarly, Snowfall Protocol has made a commitment to educate their members on the proper reporting procedures that apply to their holdings.
The federal government is clear in its position that no one should attempt to evade taxes, so those who choose to use Bitcoin, Ethereum, and Snowfall Protocol need to pay extra attention to the changes that these systems will bring. Fortunately, the crypto community has begun to take steps towards better educating its users and helping them accurately declare their crypto activities. In the end, the crypto world is responding accordingly to the IRS’ notice, and will hopefully serve to make crypto more accessible to the public in the long-term.